Government completes draconian draft tax law

Government completes draconian draft tax law

Rendi A. Witular, The Jakarta Post, Jakarta

The Directorate General of Taxation has completed the revision
of the country's tax laws, which will include greater power for
the tax office to detain major tax evaders without trial and
impose stronger sanctions on a range of lesser violations.

According to a draft of the revised version of the General Tax
Procedure Law No. 16/2000, a copy of which was made available to
The Jakarta Post on Tuesday, a tax official assigned to
investigate a tax crime will have special powers -- much like the
police -- to capture and detain people suspected of committing
tax crimes.

Moreover, the directorate will also have direct and full
authority to investigate a tax crime without consulting the
police, which is the way the current system works, but has been
deemed inefficient.

Aside from finishing the revision on the tax procedure law,
the directorate has also concluded the drafting of laws for
value-added taxes, luxury taxes and income taxes. The drafts are
expected to be submitted to the House of Representatives for
deliberation in February.

The revision of the tax laws, which are part of the
government's key economic reform measures after graduating from
the International Monetary Fund bailout program, is aimed at
boosting tax revenue and compliance.

Granting greater power to tax officials to detain people may
become a controversial issue and will likely meet with protests
from various groups.

I Made Gde Erata, head of the tax reform team at the tax
directorate, who has also been involved in the revisions, told
the Post that it was part of the government's reform drive and
that the law could still be revised.

"The law is still subject to change," he said.

The tax directorate has previously said that it needed a
stronger legal basis to be able to act decisively against
uncooperative taxpayers amid growing concerns over the
astronomical amount of tax arrears.

Currently, the tax officials are only permitted to detain
people suspected of tax evasion as stipulated under Government
Regulation No. 137/2000, which came into effect early in 2001.
But with the revised law, the tax office can also detain people
suspected of committing other forms of tax violations.

The tax office has detained two suspected violators, including
one foreigner, since the government regulation became effective.

But the move has been strongly opposed by businessmen and
economists, who said that such policies could further encourage
extortion and collusion as it could be abused by the thousands of
unscrupulous tax officials to fleece taxpayers.

Other controversial points under the draft of the general tax
procedure law is the authority for the tax directorate to
directly confiscate assets, bank accounts, account receivables
and commercial papers belonging to those deemed to be
uncooperative taxpayers, without the consent or involvement of
the police or state bailiff.

Sanctions for tax violations will also become much stiffer.
For example, a corporate taxpayer will be penalized a Rp 1
million (US$120) fine if it fails to submit its annual tax
notice, known as a Surat Pemberitahuan Tahunan (SPT), on time.
The penalty is higher than the Rp 100,000 fine currently imposed.

The tax directorate has refused demands from businessmen to
include in the draft revision an article that covers a
reimbursement for reckless or intentional disregard of guidelines
by the tax officials, which are known to occur frequently.

Other key points in the draft law

* Taxpayers will be fined Rp 500,000 for failing to submit their
value-added tax forms, known locally as PPN, and Rp 50,000 for
other taxes.

* Corporate taxpayers will be fined Rp 1 million for not being on
time with their annual tax statements and Rp 250,000 for
individual taxpayers.

* Taxpayers will have to pay a monthly interest of 2 percent of
their unpaid taxes.

* Corporate taxpayers that fail to comply with tax notices
accurately or intentionally refuse to report activities subject
to taxation, will be fined 10 percent of total reported taxes.

* Taxpayers will be sent to prison for a maximum of six years or
a financial penalty of four times the amount of the unpaid taxes
for failing to have a tax register number; intentionally
falsifying tax reports; rejecting an audit; fake documents; or
failing to keep accounting reports, notes and documents related
to the payment of taxes.

* Taxpayers who received a tax restitution illegally face a
maximum 6-year imprisonment or a fine four times the amount of
the withdrawn restitution.

* Taxpayers who intentionally issue a false tax notice could also
be imprisoned up to six years or fined Rp 500 million.

* The tax directorate has the authority to state the amount of
tax if there is an indication that the taxpayer has not reported
the tax properly based on reports from state and private
institutions.